SEC: watchdog that not only barks but bites

The Director General of the Securities and Exchange Commission of Sri Lanka, Arittha R. Wikramanayake who is resigning office in December has made the SEC into a formidable watchdog that not only barks but bites.

Q : What areas would be covered by the changes to the SEC Act ?

A : One of my regrets is that these amendments could not be passed during the last few years. But we are fairly confident that it will be passed early next year. It has been finalised and I also understand that the amendments have been approved by the cabinet.

What the amendments seek to do is to give the SEC additional powers in terms of investigations and enforcement. We will have the right to summon people, record statements and question people. It will also give us the powers to go directly to courts as the SEC, and bring action in the name of the SEC.

Q : You mean you will have your own lawyers, without going through Attorney General ?

A : We will have our own lawyers. But in complicated cases we will have to go to the Attorney General for his advice. He is the lawyer for the state and he has the experience to give us advice on issues like that.

But before that we need far more powers of investigation.

At the moment what happens is that we use certain sections of the SEC act to conduct our investigations but there can be situations where we are faced with obstacles. In those situations we are compelled to go to the CID. They have given us all the co-operation possible. But naturally they have other priorities and I do not think they have the proper training to investigate into this type of crime. The amendment will change that and give us far more investigatory powers.

Q : How does our investigatory powers compare with markets like USA or UK ?

A : Our powers are nowhere near what exists in the US. Our powers are nowhere near what Commissions in Malaysia Thailand have for instance. They have very wide powers. They have powers of search powers of confiscation of documents.

Some even have police divisions within the SEC. Even without limited powers we have been able to achieve far more that a lit o four neighbouring markets.

But I would certainly say that we had done far more than any regulator in the region with our resources. Our total staff with the drivers and peons are 50. Compare this with the staff of Thailand for instance which started at the around the same time as us. They have a staff of over 300. Maybe their market is larger. Malaysia has about 280 today. With the limited staff that we have we can be very proud of what we have achieved.

Btu we have also had the co-operation of the industry. When we asked for information more often that not we have had their co-operation. But it is a good thing for the SEC to have these powers in the statute because it will make SEC's position much stronger and give the SEC much more confidence to go into an investigation.

Q : Despite all these constraints you have had some notable successes, but these does not seem to much awareness. Why aren't market participants been made more aware of this ?

A : I think we have had a lot of successes and these have not had as much publicity as we would have liked to have. Not for the sake of making the SEC look good but for the purpose of deterring people from committing these acts over and over again.

This is where I have a bone to pick with the press. In all these cases we have sent releases to the newspapers and asked them to publish it, so that people would know what is being done and be aware of what these violations are. The press has usually not done this for reasons best known to them.

Q : Can you outline some of these events?

A : If you go back to 1992, I do not think anybody in the industry could take pride in having been a part of it at the time. The broking industry was basically a stepping stone for school leavers to go onto other things, after making a lot of money.

We spent the first year studying the market. We studied trading records, we studied trading systems, we studied the laws and by the end of 1993 we made several detections as far as the broking industry was concerned.

You may recall that we got rid of three Chief Executive Officers of three of the largest broking firms in the country. Quite apart from that I believe there were around 30 other individuals in the broking industry who were caught committing offesnces such as 'front running' or 'cherry picking'. The broking firms got rid of them and these persons have not been employed in the industry since.

That sent the message to the industry that the SECmeant business, as far as enforcement of regulations was concerned.

After that we took action against a unit trusts management company where we detected the general manager and chief investment officer doing things which we thought were not correct. As far as that case was concerend we suspended the management company and took action against them to make sure that it would not happen in the industry again.

We were hard on them because they were managing public funds. They were managing the funds of small people who did not have the sophistication to get into the market by themselves.

That sent a good message to the industry and things have been cleaned up since then. During the last few weeks a lot of publicity has been given to a case in Hong Kong where Jardine Fleming was caught for the same thing. I attended a conference last month and they were talking about Jardine Flemings and the regulator in Hong Kong said this had not happened anyhere in the world. I said this had happened long before in Sri Lanka. That is the extent to which we enforce regulations here.

Quite apart from that we have taken action against several directors of listed companies. We have compounded a case of insider dealing. After we went to court the parties concerned came to the SEC and wanted to compound it. We compounded it with the directors paying twice the amount that they had made on the transaction. That is five million rupees. If we had gone to court we may not have been able to recover so much. That speaks volume for the SEC because they knew that they would lose the case if we went ahead with the prosecution. We have also filed five other cases of insider dealing in past two years.

I challenge you to show any mareket in the region where they have concluded a case of insider dealing like this. I am not talking about India Pakistan and Sri Lanka but the whole of South East Asia.

We have taken action against several directors of listed companies. We came out with a finding of malfeasance against the directors of a Palm Garden Hotels. Recently we brought in the directors of Kelani Tyres and again the Commission came out with a finding of malfeasance against the directors of this company.

Another example is tghe Merchnt Bank case where we brought in some of the most powerful people in the country and warned them and the whole thing was exposed. You can be sure that they will not continue to make the same mistakes again.

We have suspended several broking firms on and off, for violations of rules. We were very strict with them but I believe we were fair by them and applied regulations evenly. We have not favoured the large man against the smaller person.

Q : How far can you back-track and investigate in order to take action. Just because you haven't take action against against an act which took place say four years ago, does that mean the perpetrator has got away with it ?

A : Look at it this way. I believe there was a lot of offences that happened before the 1992. At that time the proper system were not in place. There was no central order system. There were no records, no audit trails. I believe a lot of abuse did take place at that time, there is absolutely no doubt about it. But there is a problen in the matter of proof. Even if somebody makes an allegation that something happened, we may not be able to prove it.

One the major steps that we took after 1992 was to make it compulsory for brokering firms to keep an audit trail of the transaction that they conducted. A lot of investors may not know this. When an investor places and order with a broking firm, it is required by regulation to maintain a trail. The time the order was received has to be entered , the person filling the order has to be recorded, the time the order was executed has to be recorded. If the firm gives preference to someone they like, we would be in a position to check that and take action against the firm. It is because of this requirements for the trail that we have been able to do these enforcement in the last few years.